A roundtable discussion was held among outside directors Tsunehiro Nakayama, Eriko Kawai, Mami Indo, and Takashi Hibino. Topics of discussion included an overview of the first fiscal year of the Group long-term vision & INNOVATION 2030, including progress and outstanding issues, the executive compensation system, and effectiveness of the Board of Directors. Details are presented as follows.
Tsunehiro NakayamaMember of the Nomination Advisory Committee
Member of the Compensation Advisory Committee
Eriko KawaiMember of the Nomination Advisory Committee
Member of the Compensation Advisory Committee
Mami IndoMember of the Nomination Advisory Committee
Member of the Compensation Advisory Committee
Takashi HibinoChairperson of the Nomination Advisory Committee
Chairperson of the Compensation Advisory Committee
Hibino: In overall terms, I believe that Mitsui Fudosan performed flawlessly in fiscal 2024, the first fiscal year of the Group long-term vision & INNOVATION 2030. This is reflected in the Company’s operating results where each business segment posted historic high revenue and profits, including record levels of business income, ordinary income, and net income. Mitsui Fudosan also looked beyond its profit and loss to keep a watchful eye the Company’s balance sheet and downside risks. Taking into consideration the structure of the business environment, the Company engaged in detailed discussions over skyrocketing condominium prices and other aspects of domestic business conditions. I was also relieved to see that the Company provided timely reports on the progress of its new businesses intended to drive innovation, and that it is moving forward in a grounded manner in line with its long-term vision.
Indo: I couldn’t agree more. Quantitatively speaking, Mitsui Fudosan made steady progress toward its fiscal 2026 targets during the first fiscal year of the vision. I also think it did well in advancing along its three business strategy paths. In promoting Path 1: Promote further core business growth (develop and evolve), the Company achieved a high level of profitability despite skyrocketing construction costs, higher interest rates in Japan, and other changes in the external environment. I was also pleased to see the Company secure progress in its efforts to decouple from the market right from the first fiscal year. Meanwhile, under Path 2: Expand into new asset classes, Mitsui Fudosan also significantly expanded revenue and broke new ground through the sports and entertainment business, including LaLa arena TOKYO-BAY, which opened last year and got off to a strong start with high occupancy rates.
Nakayama: Looking back on fiscal 2024, it seems to me that one of the key points was the success Mitsui Fudosan achieved in nurturing the facility operations segment, which includes the sports and entertainment and hotel and resorts businesses, into a fourth source of revenue behind the leasing, property sales, and management segments. Although the facility operations business struggled more than any other segment during COVID-19, the Company was able to transform this segment into a fairly lean and robust operation by pursuing greater efficiency instead of cutting the workforce at the hotels it operated during this period. In this regard, the results of efforts to bolster this segment’s foundation was reflected in profit growth in fiscal 2024. I therefore recognize the evolution of the Company’s facility operations into a fourth source of revenue as a major stride forward that will eventually serve as another starting point when embarking on Path 2: Expand into new asset classes, part of the three business strategy paths.
Indo: That’s certainly the case. Mitsui Fudosan also engaged in various activities that sought to further develop and evolve itself as a platformer under Path 3: Explore new business domains and capture business opportunities. Although we have yet to see any outcomes that are directly linked to these activities, since this is only the first fiscal year of the vision, I intend to keep my eye on this path.
Kawai: Given that its core businesses have achieved such a high degree of steady progress, Mitsui Fudosan may find it difficult to intentionally undertake the challenge of new business. As an outside director, however, I intend to continue supporting these new challenges. I also believe that the Company must ensure diversity among its workforce, because any new business will demand different perspectives and skills.
Nakayama: Although the Company will likely consider M&As given the chance, I feel it is important for Mitsui Fudosan to prepare in advance from a human resources standpoint in order to ensure that its structure remains capable of taking such opportunities should they suddenly arise. Likewise, as with Path 1 and Path 2, I believe the Company must consider Path 3 in terms of timing. With this in mind, the Company did establish the new Innovation Promoting Division last year as an organization specialized in Path 3. Here, management must not push this new division into a corner, or else it will run off in the direction of short-sighted actions instead of establishing its own track record. Which is why I believe we should not measure the performance of Path 3 on an annual basis.
Indo: I feel the same way. If it were to set an investment budget based on rough figures, Mitsui Fudosan would risk losing sight of the fundamental value that it is has defined for Path 3. Which is why I also feel that it should be willing to rewrite scenarios if disconnects occur with the initial scenarios due to changes in the external environment, even as it nurtures innovation.
Kawai: As I see it, in order to drive innovation, Mitsui Fudosan must prepare an environment that allows employees whose backgrounds stem from arenas that are physically separated from the Company, and therefore differ from those of existing employees, to build a new culture as they freely engage in their work with a deep sense of passion and new perspectives.
Tsunehiro NakayamaOutside Director
After serving for many years in top management positions in the financial industry, including Representative Director and Deputy President of Mizuho Corporate Bank, Ltd. and Representative Director and Chairperson of Merrill Lynch Japan Securities Co., Ltd., Mr. Nakayama was appointed a director of Mitsui Fudosan in June 2019. He also serves as a member of the Company’s Nomination Advisory Committee and Compensation Advisory Committee.
Hibino: Despite the Company’s remarkable results in fiscal 2024, I still see Mitsui Fudosan’s overseas business as an ongoing issue. Unlike in Japan, where the Company has successfully cemented a solid presence, Mitsui Fudosan has incurred losses, albeit limited, in certain overseas areas. Achieving a return that exceeds invested capital overseas is always a challenge. I understand that the Company has already begun to sow the seeds of expansion by using the strengths it has nurtured in Japan in friendly countries, even as it seeks to avoid geopolitical risks. Yet I still feel the Company clearly needs to maintain its focus on ways of bolstering revenues in its overseas business when considering future growth.
Indo: Personally, I am concerned about the level of ROA. Capital efficiency has risen, while ROE, having already reached 8% by the end of the fiscal year under review, has trended upwards on its way to the Company’s target of 10%. When considering the Company’s balance sheet in general, however, an increase in total assets may actually serve as a factor that depresses ROA in the future. Of course, I do not see this as a problem because I have taken ROA out of context. But I still feel it is important for the Company to steadily observe ROA from the perspective of whether assets are being turned over at the right timing, all while maintaining a good balance between investment and return.
Kawai: Looking at the business environment, on the other hand, construction costs continue to skyrocket, in response to which the Board of Directors has reassessed and adjusted the plans for some projects based upon a thorough examination of profitability and future potential. The ability to engage in this kind of agile decision-making has helped to allay my concerns.
Hibino: I agree. The Board’s judgement has been remarkable, as has been its ability to seamlessly divest after making a decision, which in turn are reassuring factors. Moreover, although soaring domestic interest rates are one of the greatest risks when it comes to ensuring financial soundness, I confirmed through discussions at Board of Directors’ meetings that this presents a relatively low risk since nearly 90% of the Company’s yen-denominated borrowings are long-term, fixed-rate interest loans. On the other hand, downgrades to U.S. Treasury bonds, among other factors, mean Mitsui Fudosan must constantly keep a close watch on the global financial situation and maintain a proper debt balance. The housing market environment also faces a potential change in the supply-demand balance depending on the arrangement with housing loan interest rates. This situation demands that the Company structure a business portfolio that will not waver in response to some degree of fluctuation in the external environment.
Indo: I have placed significant faith in Mitsui Fudosan’s risk management capabilities. For example, as far as overseas investments during the past year are concerned, the Company has monitored the market while deliberating on a variety of issues, including whether to leverage debt, make loans, and take action depending on fluctuations in foreign exchange rates. I therefore hope to see the Company maintain its current staunch sensitivity to risk as it engages with those risks that may occur in the future.
Nakayama: Speaking about overseas matters, I feel Mitsui Fudosan has taken the right direction, specifically in its approach toward establishing this area as one of its sources of revenue by allocating roughly 30% of assets overseas and accelerating new acquisitions with a focus on turnover-type investments. The Company is also advancing ultra-high-speed turnover-type investments through an approach that seeks to find a good balance in the Sun Belt Area of the United States, Singapore, Australia, and other areas it had not looked to before, even as it turns over assets whenever these investments run into roadblocks. I also think the Company has taken the right direction with respect to the composition of its overseas asset portfolio. In establishing such flagship properties like 50 and 55 Hudson Yards in New York, Mitsui Fudosan is combining elements while capturing the unique characteristics of each location. Against this backdrop, the Company must not forget the issue of overseas financing. Despite the Company’s efforts to reduce its net interest burden by employing financing that considers the gap between U.S. and Japanese interest rates, I hope to see it maintain a constant awareness at the back of its mind regarding the resulting foreign currency exchange rate risks.
Indo: In similar fashion to Mr. Nakayama, I also feel Mitsui Fudosan should press forward with its overseas business. When the Company enters a market outside Japan, it begins by forming a partnership with a leading developer from the region and starting from a small position, after which it gradually learns about and acquires the development approach of the partner takes in each new country or region, and adopts this as its own. I feel this is an excellent strategy. Although the Company has a long history of international expansion that dates back more than 50 years, in order to minimize the risk of expansion under the wrong scenarios, its stance on investments must enable it to continue learning from its partners as it deepens its understanding of markets in terms of global social circumstances and population trends.
Kawai: My thoughts exactly. Overseas investments are a critical strategy given the risk of shrinking Japanese markets due to the country’s declining birthrate. Yet it is important to move forward together with partners while remaining sensitive to the surroundings.
Hibino: Mitsui Fudosan also faces the risk of natural disasters in Japan. This includes the potential damage to accrue from a Nankai Trough Earthquake. Taking into consideration the need to diversify and address the Company’s business portfolio risk, this is another reason why Mitsui Fudosan must succeed overseas. With Japan at the core of its business, the Company should enter and explore international markets by keeping its antennae attuned to overseas potential and seeking out reliable partners while considering geopolitical risks.
Eriko KawaiOutside Director
Ms. Kawai serves as Professor Emeritus of Kyoto University. Active overseas for many years, and with a wealth of experience as a management consultant at various international organizations, including the Bank for International Settlements (BIS) and the Organization for Economic Cooperation and Development (OECD), Ms. Kawai was appointed a director of Mitsui Fudosan in June 2021. She also serves as a member on the Company’s Nomination Advisory Committee and Compensation Advisory Committee.
Indo: Mitsui Fudosan revised its executive compensation system in March of this year following multiple discussions by the Compensation Advisory Committee and the Board of Directors. The main points of this revision are the clarification and disclosure of the calculation formula and the strengthening of the link with KPIs identified under the long-term vision. I was particularly pleased to see that the KPIs went beyond qualitative aspects to include the perspective of ESG, which made for a good balance between financial and non-financial indicators. The Company also set the ratio of restricted stock (RS) and restricted stock units (RSUs) that it grants to executives as stock compensation to 75%:25% as a general rule. I believe that enhancing effectiveness through the introduction of RSUs was an important aspect when considering the compensation system. Moreover, the inclusion of a high ratio of performance-linked compensation for the chairman and president as the stewards of management will also likely help smooth efforts to garner the backing of shareholders.
Kawai: I agree. Although the Compensation Advisory Committee repeatedly discussed these key revision points, linking non-financial indicators like ESG to executive compensation is what will enable these incentives to function. As I see it, however, the most important aspect is the greater transparency of the compensation system, which will make it easier for us as the outside directors to carry out our monitoring duties.
Hibino: As a form of compensation that allows the executives to share value with the shareholders, stock compensation accounts for about one-third of executive compensation. This compensation design by which executives benefit in parallel with the shareholders over the medium- to long-term appears to me to be a model with an extremely high level of sophistication.
Nakayama: That’s correct. I also feel that the ratios of the three types of compensation, namely basic compensation, bonuses, and stock compensation, are quite good since they approach those of the global standard. Turning to financial KPIs linked to compensation, bonuses are based on short-term performance in the form of business income and net income, whereas stock compensation is linked to EPS and ROE. I feel this is an exemplary approach in that it reflects the intention of the revisions, which is to align the viewpoint of the executives with that of the shareholders by ensuring that the shareholders and executives pursue the same goals over the long-term.
Mami IndoOutside Director
Having worked as an analyst and consultant at Daiwa Securities Co. Ltd. and Daiwa Institute of Research Ltd. and as a member of the Securities and Exchange Surveillance Commission, Ms. Indo has a wealth of experience and broad insight. Appointed as a director of the Company in June 2023, she is a member of the Nomination Advisory Committee and Compensation Advisory Committee.
Nakayama: The Board of Directors updated its submission criteria in fiscal 2024. This move was made to ensure more time for discussing topics that touch upon the foundation of management. The Board of Directors had deliberated on this issue multiple times in the past, ultimately narrowing down the number of agenda items and raising the monetary standard for raising matters at Board of Directors’ meetings for this purpose. These changes have in turn energized discussions by the Board of Directors, which I feel has clearly improved its effectiveness. Moreover, prior to Board of Directors’ meetings, executives share details of the matters that they have discussed at the Executive Management Committee. Which is why I feel it is perfectly reasonable that the Company’s Board of Directors received such high marks during the effectiveness evaluation. On the other hand, from the perspective of effectiveness, the Board must commit more strongly to Group governance as an issue going forward. Given the vast size of the organization, I feel the Board must continue to consider ways of evaluating governance for the entire Mitsui Fudosan Group, and methods of enhancing the effectiveness of governance.
Kawai: One of the perspectives that will contribute to enhancing the effectiveness of the Board of Directors is its diversity. Following a resolution at the Shareholders’ Meeting this year, Akiko Kaito was appointed as the Company’s first female internal director. It is my opinion that this executive appointment was a significant step forward for the Company. Because Director Kaito originally joined the Company as a mid-career recruit, we can also assume she has a different viewpoint from those who joined the Company right out of school. The Company has also steadily increased the number of women in management positions, even achieving its fiscal 2025 goal of at least 10% for the ratio of female managers one year early in 2024. In this regard, this executive appointment was also meaningful for the Company’s female employees, regardless of whether they are new graduate hires or mid-career recruits, because it broke through the glass ceiling. I also have hopes for this move in terms of improving the diversity of the Board of Directors.
Indo: In fiscal 2024, the Company held more frequent meetings of various types with institutional investors, so it seems to me it has become more aggressive in engaging in dialogue with stakeholders. On the other hand, looking at the composition of shareholders on the basis of the number of shares held in the Company, despite trending upwards, at just 5% the ratio held by individual shareholders remains in single digit territory. From the perspective of expanding the number of individual investors, in addition to executing stock splits, Mitsui Fudosan is also advancing new approaches to ensure that shareholders become regular customers of the Company, for example by offering Mitsui Shopping Park points as a shareholder benefit. I would like to see the Company continue these kinds of painstaking efforts because they will help form a balanced shareholder composition.
Hibino: When looking at this matter in terms of the cost of capital, increasing the number of individual shareholders, who generally tend to engage in contrarian investing, will reduce stock price volatility, which in turn can also be expected to lower the cost of capital. In addition, because the Company is also involved in many B to C businesses, I believe that expanding the number of individual investors and shareholders will also have a strong positive impact in this area. The Company should therefore fully focus on IR activities that also target individual investors, and expand the ratio of this group into the double digits as soon as possible.
Kawai: Along with typical IR activities, increasing the ratio of individual shareholders can also be seen as a kind of PR activity from the perspective of creating fans of the Company. This is why I feel it is important for Mitsui Fudosan to engage in these activities with the awareness that doing so will encourage these investors to become regular customers of the Company.
Indo: I agree. In addition to briefings for individual investors, I would like to see Mitsui Fudosan deepen engagement by expanding opportunities for these investors to get to know the Group, for example by holding facility tours.
Nakayama: Speaking of the ratio of shares held by foreign nationals, there are only a few leading Japanese companies in which overseas institutional investors hold nearly 50% of the shares. In addition, instead of just a few specific institutional investors, a broad spectrum of overseas investors own shares in the Company. This is a beneficial aspect in which Mitsui Fudosan should have confidence.
Hibino: Exactly as you just said, Mitsui Fudosan should be proud. This is an important characteristic of a company whose reliable growth potential has been recognized by the world at large. This interest from overseas investors is also desirable since it also serves as an expression of their hopes for the future growth potential of the Company.
Kawai: Yet there are also many things the Group must learn from the perspective of overseas institutional investors. For example, these investors make their judgements about where to invest based in part on geopolitical risks as seen from a global macroscopic standpoint, which is why the Group should incorporate their opinions gained through dialogue as a reference.
Takashi HibinoOutside Director
Having served as President and Chairperson of Daiwa Securities Group Inc., Mr. Hibino possesses a broad range of knowledge and diverse experience in finance, the capital markets, and management in general. Appointed as a director of the Company in June 2024, he serves as the chairperson of the Nomination Advisory Committee and the Compensation Advisory Committee.
